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Example: disclosure in the financial statements of a warranty provision 

Warren Tees Ltd. is a manufacturer of golf tees. Tees purchased are covered by a three year warranty, 

whereby the company will replace any defective tees.  

At the end of last year on 31 March 20X6, a provision of $150,000 was made. During this year, 

$75,000 was paid for the cost of replacing tees under warranty. At the end of this year, the company 

estimated that a provision of $135,000 was needed.  

ACCOUNTING ENTRIES 

The cost of replacing tees under warranty is a utilisation of the provision: 

DEBIT  

 

Provision (SOFP)    

 

$75,000 

CREDIT 

 

 Bank 

(SOFP) 

 

     $75,000 

The increase in the provision during the year of $60,000 is the charge to the statement of profit or loss 

for the year:  

DEBIT  

 

Warranty costs (SPL)  

 

$60,000 

CREDIT 

 

 Provision 

(SOFP) 

 

    $60,000 

 

DISCLOSURE 

Below is an example of how the warranty provision might be disclosed in the notes to the financial 

statements.